Back to Basics

by Graham Newton On Feb 1, 2005

The SAS Group needed ideas as fresh as the snow on the ground in its home
region if it was to remain a competitive player both within Europe and on a
global scale. Although a member of the successful Star Alliance, the Group
was faced with Scandinavia's above average costs and the declining yields
affecting every airline as a result of low-cost competition.

The Group had also become aware that it had perhaps 'grown fat' over
the years, developing comfort layers of bureaucracy and management that prevented
it from reacting quickly to market dynamics.

The solution to these problems came in the form of a structural decentralization
plan that should allow the different SAS companies to forge closer relationships
with their clients and market, allowing a speedier and more cost-effective
response.

"SAS Ground Services (SGS) has actually been run as a separate business
unit within the SAS Group since 2001, but on October 1, 2004 we became a completely
separate entity," says Hans-Otto Halvorsen, president, SAS Ground Services. "And
as we are no longer part of an airline, our focus is now on running a professional
business and competing in the ground services market. Being separate gives
us a much clearer role as a supplier, both internally and on the market."

SAS Ground Services is now a wholly owned subsidiary of the SAS Group and
is actually split into five distinct organizations. There is a company each
for the three main countries -- Denmark, Norway and Sweden -- an international
division and a Ground Equipment unit. SGS has 8,500 employees, and serves almost
150 airports in 37 countries. Each year it handles approximately 35 million
travelers and 365,000 tons of cargo and mail.

The company hopes that by concentrating on its core mission it will be able
to shape a more efficient travel experience. Focusing on the basics in this
manner should help reduce not only its own costs but also those of its customers,
enabling a more profitable experience all round.

Equipment breaks away

An important part of the decentralization process was forming a separate
ground equipment business unit. Explains Halvorsen: "Managing ground equipment
is not a core business for a ground handler. By letting this unit maintain
a degree of independence, SAS Ground Equipment (SGE) is given the opportunity
to focus and expand on its own market."

Previously, SAS Ground Equipment specialized purely in ground equipment maintenance
but with the formation of a separate business unit under the auspices of
SGS, this task has been expanded. Now, it also deals with the ownership and
leasing contracts of the equipment, a job transferred from the old SAS Ground
Services unit and SAS Technical Services (STS).

"By doing this we have created a body that is responsible for the purchasing,
financing, administration and selling of all our equipment," Halvorsen
notes. "Through increased purchasing power and an increased overview, SGE
will be able to standardize and also optimize the use of the equipment and thereby
lessen the need for purchases."

The reporting process for equipment requirements will work in a straightforward
manner. The regions will inform SAS Ground Equipment about their needs and,
over time, should expect to pay lower prices for a more cost-effective service. "Since
this is just being set up we can't point to experience in the matter,
but we believe the process will be efficient," adds the President.

Union agreements

Although not directly related to the SAS Group's decentralization strategy,
another fundamental element in SGS's future sustainability will be the
company's relationship with workers' unions.

For example, difficulties with the Swedish Transport Workers' Union had
led to that particular union threatening a strike on October 11, 2004. It was
only an agreement that resulted in higher personnel costs that saved the day.

This new deal between SAS Ground Services Sweden and the Swedish Transport
Workers' Union differed from the 'National Agreement,' which
applies to all other airlines and ground handling companies that are members
of the Swedish Air Transport Employers Association.

And because it was actually more generous than the norm, the 'SAS Agreement' obviously
hindered the company. In effect it would not allow SGS to compete on a level
playing field in what is an intensely competitive market.

At the time of the new agreement, on October 6, SAS Group CEO J?rgen Lindegaard
was forced into the following comment: "We have succeeded in signing
a new collective agreement with 38 out of 39 trade unions to adapt SAS's
cost structure to external conditions. On behalf of SAS employees, I regret
that we did not succeed in achieving such an agreement with the Transport Workers' Union."

However, after further intense negotiation, on November 26, 2004, SGS Sweden
and the Transport Workers' Union were finally able to agree on about
800 loaders moving to the 'National Agreement.' Rules for the transition
from one agreement to the other were also reached.

"To be able to compete in the Swedish market on equal terms with the other
players in the ground services industry, SAS Ground Services Sweden needed to
join the National Agreement," informs Halvorsen. "We are happy to
report that this has now been achieved and for SAS Ground Services it means a
reduction in costs and increased productivity. Loaders at SAS Ground Services
Sweden will now have the same agreement as other loaders in the industry."

The positive reaction by the Transport Workers'
Union to SGS Sweden's needs bodes well for the future
and should help create the conditions necessary for a
profitable enterprise.

Airline focus

With what it believes to be the elements for success now firmly in place,
the challenge is for SGS to realize
its potential.

"Our aim is to expand and capture new market share," admits Halvorsen. "To
do this, we have to become better known in the market. We are actually quite
a large company with approximately 70 contracted airlines and a turnover in 2003
of ?550 million, but so far we are mainly known in Scandinavia -- even
though we are represented by our own staff and sub-contractors at airports worldwide.

"So our growth will come mainly outside Scandinavia," he continues. "And
since we are in a business-to-business environment our marketing plans are mainly
networking-oriented rather than extensive promotional campaigns."

Achieving this growth and improving the company's processes should have
a knock-on effect and allow the airline itself to benefit. "Ground services
are an essential piece in the airline puzzle, since we are often both the first
and last contact points with a traveler," Halvorsen notes. "Our
part of the business is also among the larger cost elements for an airline,
which means any reduction naturally comes into the airline focus.

"However, a professional ground service company will provide travelers
with safety, punctuality and service, not to mention a smooth flow through the
airport. A good ground services company must be able to show its true colors."

No longer hidden within a major airline's bureaucracy, SGS's true
colors are now on display.